Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

What is the Difference Between Secured and Unsecured Debt in Bankruptcy?

By Ryan C. Wood

What is unsecured debt? An unsecured debt is any debt you have that is not secured by collateral. Some examples include credit card debts, medical debts, personal loans, and deficiencies from repossessed vehicles or foreclosed homes. What is secured debt? A secured debt is a debt that is secured by collateral. The collateral may be recovered by the creditor if you default on the payments. The most common types of secured debts are real estate and vehicles. If you do not pay the debt the creditor can take possession of the collateral such as foreclosure of a home or repossession of a vehicle. Once the collateral has been taken to satisfy the debt any deficiency remaining is considered unsecured debt. Other secured debts include debts incurred to finance the purchase of a television or furniture. If you do not make the payments the television or furniture can be repossessed. Make sure you communicate to your bankruptcy attorney whether you have purchased items on credit like television or mattresses that you are still making payments for.

Why is it important to know the amount of your secured and unsecured debt when filing bankruptcy? There are several reasons. One of the reasons is that your total secured and unsecured debts determine whether you are eligible to be a debtor under Chapter 13 of the bankruptcy code. There are limits on how much secured and unsecured debts you may have. Currently (April 2013), you are not eligible to file a Chapter 13 bankruptcy case if your non-contingent, liquidated secured debt exceeds $1,081,400 or your non-contingent, liquidated unsecured debts exceed $360,475. You therefore need to know exactly how much secured and unsecured debts you have so you know if you are eligible to file a Chapter 13 bankruptcy case. Most bankruptcy lawyers will run your credit to make sure the debts listed in the petition are as accurate as possible, but you may owe money to a business or individual that does not report to the credit bureaus.

Another reason it is important to distinguish between your secured or unsecured debts is that you need to continue making payments on your secured debts if you want to keep the collateral. It does not matter what chapter of bankruptcy you file under. When you file for bankruptcy your underlying debts are discharged, but the debt is still secured to the collateral. If you stop making payments the creditor will have the right to take the collateral back. If you do not want to keep the collateral or if you cannot continue with the payments you can surrender the collateral in your bankruptcy case and the underlying debt may be discharged. Keep in mind, however, that the collateral is still your responsibility until the deed or title is transferred out of your name.

A third reason why it is important to distinguish between secured and unsecured debt is that it may affect your ability to keep your assets. Two examples: (1) In the case of In re Traverse (1st Circuit BAP decision, BAP No. MB12-025, February 4, 2013). In this case the first mortgage was unrecorded and therefore unperfected and unsecured. There was a second lien on the property that was properly recorded. The trustee was able to sell the property right out from under the person filing for bankruptcy for the benefit of the bankruptcy estate and distribute the proceeds to the creditors. If the first mortgage had been properly recorded it would have been a secured debt and the person filing for bankruptcy would have been able to continue living in her home and continue making payments on the home. (2) If you obtain a loan from a private individual to purchase a vehicle and the lender did not properly perfect his or her security interest in the vehicle, that person would be considered an unsecured creditor. If the value of the vehicle is significant enough and you do not have enough exemption room to protect that asset the trustee may potentially liquidate that asset in a Chapter 7 bankruptcy case and distribute the proceeds to the creditors.

Bankruptcy and Secured Debt, In re Welsh and Chapter 13 Bankruptcy

By Ryan C. Wood

A reoccurring issue in Chapter 13 bankruptcy cases is whether you can keep multiple cars, ATVs, or trailers that you are still making payment on. Some of these may be considered “luxury” items, meaning that they are not necessary for you and your family’s maintenance or support. The Ninth Circuit recently decided in the case of In re Welsh (No. 12-60009, 9th Circuit, March 25, 2013) that it would not be considered bad faith to keep making payments on motorcycles, trailers, boats or other motor vehicles and therefore you would be able to keep them. Bankruptcy lawyers can now provide better guidance to clients.

In In re Welsh, Mr. and Mrs. Welsh filed for Chapter 13 bankruptcy. They had income from employment, social security, and a small pension. They were making payments to secured creditors for a house, 3 cars, 2 ATVs, and a trailer. The Trustee objected to the confirmation of the Welshs’ bankruptcy plan based on bad faith for 2 factors: failure to use some of the Social Security Income to pay unsecured creditors and paying secured creditors for what the Trustee deemed to be “luxury” items. The 9th Circuit shot down both of the Trustee’s objections.

Social Security income is excluded from the calculation of income pursuant to 42 U.S.C. §407(a). The Trustee agreed with the fact that the Social Security was correctly excluded from the calculation of income, but he argued that the failure to use any of the Social Security income to pay the unsecured creditors was bad faith. Determining good faith is based on the totality of circumstances. The court stated that Congress enacted the means test to calculate disposable income. Congress explicitly excluded Social Security income from the means test. Therefore, the court was not going to ignore the language Congress enacted and concluded it was not considered bad faith to not using Social Security funds to pay unsecured creditors. Most bankruptcy attorneys have long excluded Social Security funds from the Chapter 13 Statement of Monthly Disposable Income prior to this decision.

The Trustee’s next objection was regarding the payment to secured creditors for what he considered to be “luxury” items. His objection centered around the fact that the secured payments were for luxury items and not considered to be things reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor pursuant to 11 U.S.C. §1325(A)(i). The court responded by saying that §1325 indicates that what is considered to be reasonably necessary is determined by looking at §707(b)(2). §707(b)(2) does not provide any limits on the secured debt deducted from the currently monthly income. Therefore, if Congress had wanted to limit the kind of secured payments you can make in bankruptcy it would have done so. The court concluded that since there are no such limitations on secured payments it was not considered bad faith for the Mr. and Mrs. Welsh to deduct those payments on the means test as long term secured debts.

Can the IRS Levy my Social Security Income and 401k?

By Ryan C. Wood

There are certain income streams and assets that are protected from creditors and their collection activity. Things like income from Social Security or your ERISA (Employee Retirement Income Security Act) qualified retirement accounts are normally exempt from collection activity. However, you need to be careful because there is an exception for the Internal Revenue Service (IRS).

Once the IRS files a lien against you they can do what most creditors can do: garnish your wages, levy bank accounts, or place liens against any of your property. If that is not enough to cover the debt owed to the IRS the IRS can then go ahead and levy your federal payments (up to 15%) such as Social Security benefits and benefits that are administered by the Office of Personnel Management. The IRS will cannot levy income from unemployment benefits, special pensions for Medal of Honor winners, workers compensation, certain public assistance payments, and court-ordered child support payments. This is not a comprehensive list. For more information on what can or cannot be levied you can view IRS Publication 594 and other forms and publications from the IRS website.

In addition to being able to levy your federal income payments the IRS can also levy against your income received from pensions and retirement plans such as 401ks, Stock Bonus Plans, Profit Sharing, IRAs, SEP-IRAs and Keogh Plans. The important thing to note is that the IRS stands in your shoes. They can only receive what you would be able to receive at the time of the levy. If you cannot withdraw any funds from the retirement account until you retire the IRS cannot levy those funds until you retire. If you can withdraw funds from your retirement account like a 401k but will be penalized 10% for the early withdrawal the IRS gives you a break. They will levy your 401k but they will not tax you for the 10% early withdrawal. Sometimes people find that that is an easier way to get the IRS off their back and request that the IRS do so. Of course that would still sting and would set you back quite a bit on your 401k, but it may be a better solution than having the IRS constantly after you and accruing interest and penalties at the same time.

You can of course dispute the levy with the IRS if you believe you do not owe the amount the IRS says you owe. If it is determined that you actually owe the amount you can try to do an Offer in Compromise or do an Installment Agreement. Additionally, before the IRS decides to levy on your retirement assets they have to determine if you depend on the retirement account for necessary living expenses. If you can prove to them you need all of your retirement income to live each month they may hold off on levying your retirement assets.

Another alternative is to file for bankruptcy. Contact a bankruptcy lawyer in your area to see the bankruptcy can help. If your tax debt is more than three years old, filed more than two years ago, assessed more than 240 days ago and not filed fraudulently, your tax debts may be dischargeable in bankruptcy. The key is to try to file your bankruptcy case BEFORE there is a lien on your property. If you file your bankruptcy case after there is a lien on your property the IRS may still be entitled to the retirement assets you had at the time you filed for bankruptcy. They cannot attach to any after-acquired property but they can still get to your retirement account, especially if you will be retiring soon and will be able to access your retirement funds. You should contact an experienced CPA or bankruptcy attorney if you believe you will be receiving a notice from the IRS that they will be filing a lien against you soon. Do not ignore the IRS.

Can I File a Joint Bankruptcy Petition with my Same Sex Spouse?

By Ryan C. Wood


Under 11 U.S.C. §302, if you are legally married, both you and your spouse will be able to file a joint bankruptcy petition and receive the benefits provided under the Bankruptcy Code. The Defense of Marriage Act (DOMA) that was signed into law on September 21, 1996, defines marriage as a legal union between one man and one woman and therefore prohibits the federal government from recognizing legal marriages of same sex couples. Bankruptcy court falls under federal jurisdiction. What does this mean? It means that bankruptcy courts will not recognize same sex couples as legally married and could potentially deny a same sex couple to file a bankruptcy together. This would mean higher costs for a same sex couple as they may potentially need to file two separate petitions and pay two separate filing fees.

All is not lost, however. On February 21, 2011, President Obama declared that the Defense of Marriage Act should be repealed and Attorney General Eric Holder indicated that the Obama Administration will no longer assert the constitutionality of the DOMA in Court. Prior to this, the U.S. Trustees or the Trustees administrating the individual cases would raise the objection in court and seek to dismiss the case if a same sex couple filed a joint bankruptcy petition. It would have been up to the individual judges who may dismiss the case for cause. The courts look at each case on a case-by-case basis and makes a decision based on the circumstances including what is the best interest of the debtors and creditors.

So if the United State Trustee, an arm of the Department of Justice, no longer defends the DOMA in court and defending DOMA to dismiss a case based on the marriage of a same sex couple, does that mean you now get to file a joint bankruptcy petition with your same sex spouse? That is most likely the case. If the trustee doesn’t object based on this issue the only other parties in interest that may have standing to object to your petition would be the creditors in your case. They would most likely not object due to the costs involved in hiring a bankruptcy attorney and the fact that it may also benefit the creditors to have the case be jointly administered if the debts were jointly incurred. Additionally, the creditor may receive a lot of negative publicity if they were to object to a joint case based on a same sex marriage. But ultimately the classic answers many bankruptcy lawyers give to questions is it depends upon the circumstances.

The Supreme Court is set to hear two same sex marriage cases. California’s Proposition 8 case will be heard on March 26, 2013 in Hollingsworth v. Perry. Windsor v. United States will be heard on March 27, 2013. We will wait and see what the Supreme Court has to say about same sex marriages and the constitutionality of DOMA.

Can I Buy A House After Bankruptcy?

By Ryan C. Wood


The question of whether you can buy a house after bankruptcy is one of the most frequently asked questions. Most bankruptcy lawyers give the somewhat helpful answer that “it depends.” A lot of people think that they will be automatically denied a loan after filing bankruptcy, but that is not true. Banks look at a lot of different factors when they are deciding whether to extend credit to you. They look at your credit score, your income, how long you have been employed, how much debt you have, how big of a down payment you are putting down, and many other factors. If you have filed for bankruptcy already you will not have any debt weighing you down. If you add in the fact that you have been steadily employed making decent money and you have been saving all your money (since all your unsecured debt was discharged in your bankruptcy case), it may be possible that a bank would extend credit to you to buy a home.

Whether the bank is willing to extend credit to you also depends on the economy and the credit situation at that time. When the real estate market was on the rise people were able to buy a house a couple years after filing bankruptcy. Right after the real estate market came crashing down even people that had perfect credit were not able to obtain loans because the banks were really tight with their money. An example of this is a self-employed individual with a credit score in the 800s. She was willing to put a 50% down payment on the home. The banks refused to lend her credit because she was self-employed and therefore, according to the banks, higher risk that the business would fail and she would be unable to repay the mortgage.

Even if a bank is willing to extend credit to you to buy a home one factor you need to look at is what interest rate you will be charged. If you have filed for bankruptcy recently the interest rate may be higher. One possible way that your interest may be lower is if you have a co-signer that has a great credit to buy the home with you. You need to be sure you can afford to repay the loan with the interest included before you sign on the dotted line and incur more debt or you may need the services of a bankruptcy lawyer. You may potentially be able to refinance the home at a lower rate in the future if your house has equity and you have been steadily maintaining your credit, but that is not something you should be banking on when you are incurring the debt because it may never happen.

Bottom line: it is very possible to obtain credit to buy a house even after filing for bankruptcy depending on what the economic situation is like.